"The economy, stupid."

The outcome of Argentina's presidential election could determine the success of right wing governments in Latin America

Published about 1 month ago in Latin America and Economics & Finance

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Argentine unions, small firms and activists march near Argentina’s Congress to demand changes in President Mauricio Macri’s economic policies, in Buenos Aires, Argentina April 4, 2019. (Source: Agustin Marcarian)

“It's the economy, stupid,” is a popularized variation of an internal campaign slogan during Bill Clinton's 1992 presidential run. The phrase refers to the assumption that the American people view their paychecks and the size of shopping carts as personal and political priorities. Clinton's team of strategists pinned economic preservation as a core focus of his successful campaign. Americans are more responsive to policy that protects capitalism above civil liberties, which I believe to be true, and this seems truer than ever in Argentina and Latin America today. 

On the 22nd of November, 2015, Argentina was the first country in Latin America to clearly move away from the socialist trend that had swept the region. Almost exactly 20 years ago, in 1999, Hugo Chavez came to power in Venezuela pledging a 21st Century Socialism that would transform his country and the region. However, the trend reversed. The question is if the shift to the right that followed is here to stay, as the state of the economy becomes a key factor with Argentina heading to the polls in October for a general election.

The future of a sustainable right-wing trend in the region will be determined in my opinion by the economic and social development that each administration will be able to bring to the table at election time. All concerns of justice, non-corruption and free speech that were the flagships of campaigns will be belittled if a return to poverty and economic inequalities occurs for millions of Latin Americans. Economic growth and social inclusion must be the key priorities for these governments if they wish to remain in power.

Over ten years ago, Latin America saw a “pink tide” coming over the region that consisted in the coming to power of many left-wing governments from Caracas to Buenos Aires, in what was seen by many as an answer to a failed campaign of economic liberalization and during the 90s. These often populist governments tried to put forward a more progressive agenda that focused mainly on social rights and the redistribution of wealth amongst the population, allowing for greater consumer power and more general prosperity. The measures taken had some life changing results for millions, as, for example, Brazil reduced extreme poverty rates from  25% of the population in 2003 (the year when the Workers party took office), to  8,9% of the population in 2013.

Generally the economy was more actively intervened on by the government, through the nationalization of public services providers and companies that were deemed strategic for the economic prosperity of their nations. For example, Venezuela forced all foreign oil companies to merge with the state-owned PDVSA, resulting in huge economic benefits for the country and along the same lines Bolivia nationalized all oil and gas in 2006. Public expenditure greatly increased to finance consumption, infrastructure projects and generous poverty alleviation programs.

However, many of the economic models proposed started to flounder as international commodity prices back slided as early as 2013-14. A general process of overdependence on the export of raw materials can be blamed for the economic problems that affected Argentina, Venezuela, and Brazil, among others. The formerly vital exports of products such as soybeans, oil and natural gas became insufficient to finance huge state budgets and fiscal deficits mounted alongside with a return to poverty and inflation. It became evident that the age of big government expenditure and redistribution of wealth could not go on. 

In the midst of these difficulties the left-wing governments started to crumble and a peaceful democratic shift to the right occured. For the first time in Latin America's history the way out to a general regional economic trend didn't come about through terrible instability and a break in the democratic order, like had happened during the 20th century. Democracy prevailed. Mauricio Macri defeated the governing party’s candidate, Daniel Scioli, running a center-right-wing campaign that pledged to liberalize the economy, reduce government expenditure and bring an end to the rampant corruption that had extended over the country. Almost four years have gone by and with that election the region changed.

Opposition activists across the spectrum were invigorated by the chant coming out from Macri’s presidential campaign “sí se puede” (yes we can), referring to a possible exit to the economic trap into which many of these economies had fallen, as well as the corruption cases that smeared their governments. Soon the region had shifted from a “pink wave” to a right-wing push towards a “blue wave”, with presidents like Sebastián Piñera of Chile, Jair Bolsonaro of Brazil and Pedro Pablo Kuczynski of Peru being elected. Their brought forward very pro-market and business-friendly platforms, with key campaign promises including transparency, respect for the constitution and an all-out assault against corruption. A turn towards a (in general) less individualistic and authoritarian way of government that would bring about balance and economic growth was pushed for in Brazil, Paraguay and Chile, amongst others.
 
The current situation in the region I believe boils down to an upcoming test for the right-wing governments that are having to compete with the memory of a greater consumer power and an overall better style of living that characterized the majority of the past political trend. 

Argentina will be ground zero. The Argentinian economy is in tatters after the country’s GDP fell by 2,6% in 2018, and there are currently no immediate prospects of an economic recovery. Over the past 12 months the country's currency, the peso, lost over 50% of its value, inflation rose to a staggering 47% and an emergency IMF bailout deal of 56 billion dollars was agreed upon to salvage the plummeting economy. 

This fall out of the government's economic plans occurred due to an over reliance on international borrowing by the Macri administration that financed the country’s fiscal deficit. This option was chosen rather than to swiftly undertake a reduction in the expenditure of the state or to expand its money raising capabilities. A combination of factors including a loss of confidence on the country’s Central Bank’s ability to face up short-term debt, a terrible drought that affected the country's main export (soybeans) and a hike in US interest rates, made the peso crumble under the pressure, as well as shutting all financial markets to the nation.

On the plus side as the current president came to power, a huge stride towards transparency was undertaken with former president Kirchner being accused of directing a money laundering and corruption scheme that could have stolen as much as 10 billion dollars stemming from more than 2000 corruption charges. These efforts have seen prominent figures like the vice president arrested and the former president herself facing multiple trials in the coming months. Yet, the possibility of a return to power by former president Cristina Fernandez de Kirchner is an ever growing concern, with many polls suggesting that her positive image is now 10% higher than Macri´s.

Corruption and transparency have been across the region a driving force that ousted left-wing governments from office. In Brazil former president Rousseff suffered a terrible impeachment for deception in public finances herself, and her party being involved in the famous Lava Jato corruption case. Similar things happened in countries like Chile and Paraguay. 

Yet the question of how important those civic concerns may be for the general population are much open to debate. During the Workers Party  (PT) term in office, over 29 million people were lifted out of poverty, yet with the current administration all public expenditure hikes have been put on pause for 20 years to come, and Brazilian consumers seem pessimistic as to their economic future. I believe that the average latin american voter is even more susceptible to make political decisions based on their economic situation given the structural poverty that spread through the region, that was firstly attempted to be broken the past administrations.

As Argentina heads to the polls, it is evident that the possibility of a return to power by former president Cristina Fernandez is I consider, an appalling scenario as all possibilities of justice and transparency in the country hang in the balance. This also could mean a return to a persecution of independent journalists and a colonization of the judiciary by her party  through a reform of the constitution, something that every free democratic individual such as myself should stand strongly against. Yet, however terrible that scenario may be, it is important to understand that since she left office the population´s average income has fallen more than 15%, energy prices have hiked upwards of 1.600% and fuel is up by more than 200%. Although these services were heavily subsided in the past, it is evident that wages couldn't keep up with a more “rational” economy and the price hikes that were implemented. 

I believe that regardless of the evident difficulties the current government had to undertake as they took over, their administration of the economy has been dismal at best, and we should hold them accountable for that, as results are what really matter to ordinary voters. People may very well decide to go back to a controversial leader following the promise of more consumer power, longer and better holidays and larger shopping carts, and who can blame them. As of this month one in every 3 argentinians is poor, and people are having serious difficulties to make ends meet. It is becoming increasingly hard for the average voter to “have faith” that the country in the right path and endure more sacrifices, the future is a long way off but food needs to be paid for today.

Transparency and civic preoccupations that include  the division of powers, freedom of the press and authoritarian policies, were proven to be important by the population in the past elections. However, I consider that, as the Clinton team sharply understood, people can't eat transparency or the rule of law, prices go up and even the best access to freedom of speech can’t pay the bills. 

The question inevitably comes back to the economy. According to a recent poll, the percentage of people that would tolerate some corruption that would in turn bring about an improvement on their living conditions increased between 2017 and 2018, from 44% to 67% of the population in Argentina. This is a real devastating and bleak prospect for the Macri administration and there are lessons to be learnt in the region. Economic prosperity and poverty alleviation are not negotiable if these governments want to remain in power. Other presidents such as Bolsonaro and Piñeira I believe should take actions now to make sure that their economic administration tends to provide opportunities for the lower middle classes and the poorest in their countries if they want to be re elected.  

The continuation of the general process that started with Mauricio Macri as a turn to the right of the political spectrum, with economic liberalism, a greater number of foreign investments and “fiscal responsibility”, will be put to the test on the coming elections. I think that the continent and indeed the world should be paying attention to this event, as we will see if a change is indeed possible for the region that aims to move away from populism and rampant corruption. 

The current economic model I believe needs to integrate the segments of the population (through a continuation of social policies and wealth redistribution) that were once elevated to the middle class by the former administration. The economy needs to work for everyone, or otherwise a return to past leaders is possible. The coming months and years will show us if poverty can be reduced and life conditions improved by a different set of beliefs and policies than those that governed the region in the past. As of today, that record is bleak, and the poorest in those societies are paying the price of a turn to the right. They will be the ones voting in October, and once again the real key will be the economy, stupid.



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